SAN FRANCISCO (Business 2.0 Magazine) -- It's not easy being green. But for cell-phone companies like Nokia, Motorola, and Palm, the alternative seems to be going into the red.

New regulations about electronic waste in parts of the U.S., Europe, and elsewhere are forcing handset makers to pursue innovative recycling programs and consider introducing phones that contain less toxic material. Indeed, some countries are considering punitive fines for manufacturers of phones and other electronics that don't meet these standards.

As a result, eco-conscious policies that were once just good public relations now make plenty of financial sense as well.

"Corporate social responsibility is a major driver for pursuing electronics waste recycling, because it enhances the company's image in the market," says Hari Ramamoorthy, a research analyst with business consulting firm Frost & Sullivan. "But being compliant with [electronic-waste] directives across borders is also going to enable better access to global markets."

Palm (Charts) learned that lesson the hard way last month, when the European Union's Restrictions on Hazardous Substances directive went into effect. The rules, which established standards for the amount of lead, mercury and other toxic substances in electronics, effectively outlawed new imports of Palm's hot-selling Treo 650 smartphone.

After Palm announced in late June that it would stop shipping the 650 to Europe - the only model it sells in the region - it forecasted sales for the current quarter at between $380 million to $385 million - about $20 million below what Wall Street analysts expected. That sent its shares down by 14% to $16.10.

Although Palm has announced plans to start selling a new smartphone later this year that complies with the EU's rules, its shares have continued to slide since then, closing Tuesday at $14.19.

Palm says it wasn't worth the cost of retooling the older 650 design for the European market. But it could have avoided the problem, experts say, by anticipating the stricter rules in the product's design.

And these EU standards are spreading around the world. In July, Japan's electronic industry started complying with the new EU rules, and by January 1, 2007, California will outlaw the sale of most electronics that don't meet certain EU standards on toxics.

Mining waste

Reducing toxic materials used in phones has another benefit: Phones with fewer toxins are easier and cheaper to recycle. That's helpful, considering recent laws that have been enacted in the EU, Japan and even parts of the United States which impose recycling requirements on electronics manufacturers.

To date, there are no national electronics-recycling regulations in the United States, but individual states are starting to adopt their own. In February, for example, a California law went into effect requiring all electronic waste to be recycled. And in Washington State, legislation signed last spring requires electronics manufacturers to collect and recycle their products by 2009. China, South Korea, and Canada also have some electronic-waste recycling laws.

Cell phone-maker Nokia's devices already meet EU regulations on toxic substances, says Keith Nowak, a spokesperson for the Finish company. But he adds that they are actively experimenting with phone models that are easier to recycle.

"Companies that are getting started now have a head start," says Joe Chiodo, chief scientist of Active Disassembly Research, a Canadian firm that has designed recycling-friendly phone models for both Nokia (Charts) and Motorola (Charts). "These types of [electronics recycling] laws are popping up all over the place. And I'm definitely seeing a lot of interest in this field, especially from cell phone makers."

Recycling cell phones isn't cheap or easy today. Chiodo says that up to 80 percent of the cost associated with recycling mobile phones comes from the labor involved in dismantling them - a cost his firm is trying to cut by creating devices that break apart under high heat. But, he adds, there's also money to be made reselling the extracted materials, especially tantalum, a rare metal used in cell phones.

If the cost of recycling comes down, and components can be more efficiently reclaimed, electronic waste could even become a profit center for phone-makers who partner with recycling services that resell the parts, says Chiodo.

And there could be plenty of wealth to spread around: According to Earthworks, an environmental-policy nonprofit group based in Washington, D.C., less than 2 percent of the 130 million cell phones discarded nationwide each year are getting recycled.

If recyclers could make as little as $4 per phone from reselling parts, recycling phones could become a half-billion-dollar industry.

Besides complying with the law, cell-phone manufacturers have an obvious interest in getting people to throw away their products without guilt. Cell-phone users typically buy a new phone every 18 months - but guilt over disposing hard-to-recycle products could discourage that behavior.

The easier it is to recycle phones, the more likely environmentally conscious consumers are to trash their current phone and buy a new one. That's the kind of green behavior any capitalist can get behind.